3rd Quarter GDP Revised to Indicate Growth at a 3.5% Rate

the Third Estimate of our 3rd Quarter GDP from the Bureau of Economic Analysis indicated that our real output of goods and services increased at a 3.5% annual rate in the quarter, revised from the 3.2% growth rate reported in the second estimate last month, as personal consumption growth was revised higher, state and local government shrunk less than was previously estimated, and private non-residential fixed investment increased, rather than decreased as was previously reported...in current dollars, our second quarter GDP grew at a 5.0% annual rate, revised up from the 4.6% reported in the 2nd estimate, increasing from what would extrapolate to $16,583.1 billion annually in the 2nd quarter of this year to an annualized $16,727.0 billion in the 3rd quarter, with the headline 3.5% annualized rate of increase in real output arrived at after an annualized inflation adjustment averaging 1.4%, aka the GDP deflator, was applied to the current dollar change...

recall that the press release for the GDP reports all quarter over quarter percentage changes at an annual rate, which means that they're expressed as a change a bit over 4 times of that which actually occurred over the 3 month period, and that the prefix "real" is used to indicate that the change has been adjusted for inflation using prices chained from 2009, from which all percentage changes in this report are calculated, as those changes thus represent the change in quantity of goods and services output...given the misunderstanding evoked by the text of the press release, all the data that we'll use in reporting the changes here comes directly from the pdf for the 3rd estimate of 3rd quarter GDP, which is linked to on the sidebar of the BEA press release...specifically, we refer to table 1, which shows the real percentage change in each of the GDP components annually and quarterly since the 2nd quarter of 2012; table 2, which shows the contribution of each of the components to the GDP figures for those months and years; table 3, which shows both the current dollar value and inflation adjusted value of each of the GDP components; table 4, which shows the change in the price indexes for each of the components; and table 5, which shows the quantity indexes for each of the components, which are used to convert current dollar figures into units of output represented by chained dollar amounts...the pdf for the 3rd quarter’s second estimate, which this estimate revises, is here...

growth of real personal consumption expenditures (PCE), the largest component of GDP, was revised from the 2.8% growth rate reported last month to a 3.0% rate in this 3rd estimate…that growth rate figure was arrived at by deflating the 4.47% growth rate in the dollar amount of consumer spending with the PCE price index, which indicated inflation at a 1.5% annual rate in the 3rd quarter, which was revised from the PCE inflation rate of 1.4% reported a month ago...real personal consumption of durable goods grew at a 11.6% annual rate, which was unrevised from the growth rate shown in the 2nd estimate, and added 0.84 percentage points to GDP, as an increase in real consumption of motor vehicles and parts at a 20.0% rate accounted for more than half the durables goods increase...real consumption of nondurable goods by individuals shrunk at at a 0.5% annual rate, revised from the 0.6% rate of decrease reported in the 2nd estimate, and subtracted 0.07 percentage points from 3rd quarter economic growth, as higher consumption of food and beverages at home was more than offset by lower consumption of clothing, energy goods, and other non-durables….at the same time, consumption of services rose at a 2.7% annual rate, revised from the 2.5% growth rate reported last month, and added 1.26 percentage points to the final GDP tally, as real consumption of recreation services rose at a 3.6% rate while real consumption of all other services increased as well...

meanwhile, seasonally adjusted real gross private domestic investment grew at a 3.0% annual rate in the 3rd quarter, revised from the 2.1% growth estimate reported last month, as real private fixed investment grew at a 0.1% rate, rather than shrinking at at a 0.9% rate as reported in the 2nd estimate, while real inventory growth was a bit less than previously estimated...investment in non-residential structures was revised from growth at a rate of 10.1% to growth at a 10.0% rate, while real investment in equipment was revised to show contraction at a 4.5% rate, not quite as bad as the 4.8% contraction rate previously reported, while the quarter's investment in intellectual property products was revised from growth at a 1.0% rate to growth at a 3.2% rate...at the same time, real residential investment was shown to be shrinking at a 4.1% annual rate, rather than the 4.4% contraction rate previously reported…after those revisions, the increase in investment in non-residential structures added 0.30 percentage points to the 3rd quarter's growth rate, the decrease in investment in equipment subtracted 0.26 percentage points from growth, lower residential investment subtracted 0.16 percentage points from GDP, while growth in investment in intellectual property added 0.13 percentage points to 3rd quarter GDP...

in addition, investment in real private inventories grew by an inflation adjusted $7.1 billion in the 3rd quarter, revised from the previously reported $7.6 billion of inventory growth...this came after inventories had shrunk at an inflation adjusted $9.5 billion rate in the 2nd quarter, and hence the $16.5 billion (rounded) increase in real inventory growth added 0.49 percentage points to the quarter's growth rate, oddly unchanged from the 0.49 percentage point addition from inventory growth that was indicated in the 2nd estimate....since growth in inventories indicates that more of the goods produced during the quarter were left in warehouses or "sitting on the shelf”, their increase by $16.5 billion meant that real final sales of GDP were relatively smaller by that much, and hence real final sales of GDP increased at a 3.0% rate in the 3rd quarter, up from the real final sales increase at a 2.6% rate in the 2nd quarter, when the change in inventories was negative, thus raising real final sales comparatively…

the previously reported increase in real exports was revised a bit lower with this estimate, while the reported increase in real imports was revised marginally higher, and as a result the change in our net trade was a smaller addition to GDP rather than was previously reported...our real exports grew at a 10.0% rate rather than the 10.1% rate reported in the second estimate, and since exports are added to GDP because they are part of our production that was not consumed or added to investment in our country, their growth added 1.16 percentage points to the 3rd quarter's growth rate, down a bit from the 1.18 percentage point addition shown in the previous report....meanwhile, the previously reported 2.1% increase in our real imports was revised by a small fraction to a 2.2% increase, and since imports subtract from GDP because they represent either consumption or investment that was not produced here, their increase subtracted 0.31 percentage points from 3rd quarter GDP, actually unrevised from the subtraction shown last month....thus, our improving trade balance added a net 0.85 percentage points to 3rd quarter GDP, rather than the 0.87 percentage point addition that had been indicated by the advance estimate…

finally, there were upward revisions to real government consumption and investment in this 3rd estimate, as the entire government sector grew at an 0.8% rate, rather than at the 0.2% rate that was shown in the 2nd estimate, as there were positive revisions to real state & local government consumption and investment, while federal government consumption and investment was revised a bit lower...real federal government consumption and investment was seen to have grown at a 2.4% rate from the 2nd quarter in this estimate, revised from the 2.5% growth shown previously, as real federal outlays for defense grew at a 2.0% rate and added 0.08 percentage points to 3rd quarter GDP, revised from the 0.12 percentage point addition shown last month, while all other federal consumption and investment grew at a 3.0% rate and also added 0.08% percentage points to 2nd quarter GDP....meanwhile, real state and local consumption and investment shrunk at a 0.2% rate in the quarter, which was revised from the 1.1% contraction rate reported in the 2nd estimate, and subtracted 0.02% percentage points from 3rd quarter GDP, rather than the 0.25 percentage point subtraction shown last month....note that government outlays for social insurance are not included in this GDP component; rather, they are included within personal consumption expenditures only when such funds are spent on goods or services, thus indicating an increase in the output of those goods or services...

our FRED bar graph for GDP below has been updated with these latest GDP revisions...each color coded bar shows the real inflation adjusted change, expressed in billions of chained 2009 dollars, in one of the major components of GDP over each quarter since the beginning of 2013...in each quarterly grouping of seven bars on this graph, the quarterly changes in real personal consumption expenditures are shown in blue, the changes in real gross private investment, including structures, equipment and intangibles, are shown in red, the quarterly change in real private inventories is in yellow, the real change in imports are shown in green, the real change in exports are shown in purple, while the real change in state and local government spending and investment is shown in pink, and the real change in Federal government spending and investment is shown in grey...those components of GDP that contracted in a given quarter are shown below the zero line and subtract from GDP, those that are above the line grew during that quarter and added to GDP; the exception to that is imports in green, which subtract from GDP, and which are therefore shown on this chart as a negative, so that when imports shrink, they will appear above the line as an addition to GDP, and when they increase, they'll appear below the zero line..

it's fairly clear from the above graph that the increase in exports in purple was a major and unusual contributor to making the 3rd quarter's growth the best in two years...there have been many stories attributing that increase to a sudden surge of soybean exports, but that's only half the story...while we did have a record soybean crop, the jump in our soybean exports in July and August came out of inventories to meet an unusual out of seasonal Chinese demand...since we normally don't export many soybeans during those months when the crop is still growing, those summer exports were spiked even higher by the seasonal adjustment to our trade figures...at the same time, soybean inventories were reduced, taking part of that gain back out of the inventory component of GDP...in the 4th quarter, most of that will be reversed; newly harvested soybeans will be added to inventories, adding to GDP, while diminished exports will be reduced even further by the seasonal adjustment that expects soybean exports in the late fall, lowering the export component of the 4th quarter GDP figures..

the November report on Personal Income and Outlays from theBureau of Economic Analysis includes the month's data for our personal consumption expenditures (PCE), which accounts for roughly 69% of the month's GDP, and with it the PCE price index, the inflation gauge the Fed targets, and which is used to adjust that personal spending data for inflation to give us the relative change in the output of goods and services that our spending indicated...in addition, this release reports our personal income data, disposable personal income, which is income after taxes, and our monthly savings rate...however, because this report feeds in to GDP and other national accounts data, the change reported for each of those are not the current monthly change; rather, they're seasonally adjusted amounts at an annual rate, ie, they tell us how much income and spending would increase for a year if November’s adjusted income and spending were extrapolated over an entire year...however, the percentage changes are computed monthly, from one month's annualized figure to the next, and in this case of this month's report they give us the percentage change in each annualized metric from October to November....

thus, when the opening line of the press release for this report tell us "Personal income increased $1.6 billion (less than 0.1 percent) in November", they mean that the annualized figure for seasonally adjusted personal income in November, $16,233.8 billion, was less than $1.6 billion higher, or virtually unchanged from the annualized personal income figure of $16,232.3 billion extrapolated for October; the actual, unadjusted change in personal income from October to November is not given...at the same time, annualized disposable personal income, which is income after taxes, actually fell a bit, from an annual rate of $14,226.5 billion in October to an annual rate of $14,225.1 billion in November...(this was after personal income for October was revised down from $16,260.0 billion annually and October's disposable personal income was revised down from $14,251.3 billion annually)...the monthly contributors to the change in personal income, which can be seen in the Full Release & Tables (PDF) for this release, are also annualized...in November, increases of $6.6 billion in rental income and $5.1 billion in dividend and interest income were offset by a $12.2 billion decrease in wages and salaries...

for the personal consumption expenditures (PCE) that we're interested in, BEA reports that they increased at a $24.0 billion rate, or a bit less than 0.2%, as the annual rate of PCE rose from $12,946.4 billion in October to 12,970.4 billion in November....at the same time, October PCE was revised from $12,924.9 billion annually to $12,946.4 billion....total personal outlays, which includes interest payments and personal transfer payments in addition to PCE, rose by an annualized $26.6 billion to $13,444.2 billion annually in November, which left total personal savings, which is disposable personal income less total outlays, at a $780.9 billion annual rate in November, down from the revised $809.1 billion in annualized personal savings in October ... as a result, the personal saving rate, which is personal savings as a percentage of disposable personal income, fell to 5.5% in November from the October savings rate of 5.7%...

as you know, before personal consumption expenditures are used in the GDP computation, they must first be adjusted for inflation to give us the real change in consumption, and hence the real change in goods and services that were produced for that consumption....the BEA does that by computing a price index for personal consumption expenditures, which is a chained price index based on 2009 prices = 100, and which is included in Table 9 in the pdf for this report...that index rose from 111.424 in October to 111.470 in November, a month over month inflation rate that's statistically 0.0413%, which BEA reports as unchanged, following the 0.3% PCE price index increase they reported for October...applying the actual November inflation adjustment to the nominal amount of spending left real PCE up 0.1% in November, after a real PCE increase of 0.1% in October...notice that when those price indexes are applied to a given month's annualized PCE in current dollars, it yields that month's annualized real PCE in our familiar chained 2009 dollars, which are the means that the BEA uses to compare one month's or one quarter's real goods and services produced to another....that result is shown in table 7 of the PDF, where we see that November's chained dollar consumption total works out to 11,636.1 billion annually, 1.446% more than October's 11,619.3 billion, a difference that the BEA rounds down and reports as +0.1%...

however, to estimate the impact of the change in PCE on the change in GDP, the month over month changes don't help us much, since GDP is reported quarterly...thus we have to compare October's and November's real PCE to the the real PCE of the 3 months of the third quarter....while this report shows PCE for all those amounts monthly, the BEA also provides the annualized chained dollar PCE for those three months in table 8 in the pdf for this report, where we find that the annualized real PCE for the 3rd quarter was represented by 11,569.0 billion in chained 2009 dollars..(that's the same as what's shown in table 3 of the pdf for the revised 3rd quarter GDP report)....then, by averaging the annualized chained 2009 dollar figures for October and November, 11,619.3 billion and 11,636.1 billion, we get an equivalent annualized PCE for the two months of the 4th quarter that we have data for so far....when we compare that average of 11,627.7 to the 3rd quarter real PCE of 11,569.0, we find that 4th quarter real PCE has grown at a 2.05% annual rate for the two months of the 3rd quarter we have...(notice the math we used to get that annual growth rate: (((11,636.1 + 11,619.3)/ 2) / 11,569.0) ^ 4 = 1.020451 )...that's a pace that would add 1.39 percentage points to the GDP growth rate of the 4th quarter by itself, assuming there is no improvement in December PCE from that average...

November Durable Goods: New Orders Down 4.6%, Shipments and Inventories Both Up 0.1%

the Advance Report on Durable Goods Manufacturers’ Shipments, Inventories and Orders for November (pdf) from the Census Bureau reported that the value of the widely watched new orders for manufactured durable goods fell by $11.0 billion or 4.6 percent to $228.2 billion in November, after October's new orders were revised from the $239.4 billion reported last month to $239.2 billion, still 4.8% greater than September's new orders... year to date new orders are now 0.3% below those of 2015, vs the -0.2% year over year change we saw in this report last month....a reversal of the volatile monthly new orders for transportation equipment was responsible for the big drop, as new transportation equipment orders fell $11.7 billion or 13.2 percent to $88.2 billion, on a 73.5% decrease to $5,798 million in new orders for commercial aircraft....excluding orders for transportation equipment, new orders rose 0.5%, while excluding just new orders for defense equipment, new orders fell 6.6%.... at the same time, new orders for nondefense capital goods less aircraft, a proxy for equipment investment, rose $553 million or 0.9% to $63,360 million...

meanwhile, the seasonally adjusted value of November shipments of durable goods, which will be included as inputs into various components of 4th quarter GDP after adjusting for changes in prices, increased by $0.2 billion or 0.1 percent to $234.2 billion, after the value of October shipments was revised from from $234.6 billion to $234.0 billion, now down 0.1% from September...shipments of transportation equipment were down 0.5% on a 0.6% decrease in shipments of motor vehicles and a 8.2% decrease in shipments of commercial aircraft, while shipments of defense aircraft rose 7.3%...a $0.3 billion or 1.7% increase to $18.0 billion in shipments of primary metals was the largest shipments increase percentage-wise...at the same time, the value of seasonally adjusted inventories of durable goods, also a major GDP contributor, rose for the 4th time in the past 5 months, after being down the prior 6 months, increasing by $0.6 billion or more than 0.1 percent to $384.0 billion, after October inventories were revised from $383.7 billion to $383.443 billion, statistically unchanged from September...a $0.3 billion or 0.2 percent increase to $124.1 billion in inventories of transportation equipment accounted for half the increase, but without them other inventories were still up by 0.1%...

finally, unfilled orders for manufactured durable goods, which are probably a better measure of industry conditions than the widely watched but obviously volatile new orders, decreased for the fifth time in 6 months, falling by $2.3 billion or 0.2 percent to $1,126.7 billion, following a October increase of 0.8%, which was revised from the previously reported 0.7% increase...a $3.6 billion or 0.5 percent to $769.8 billion drop in unfilled orders for transportation equipment was responsible for the decrease, as unfilled orders excluding transportation equipment orders were up $1,307 million or 0.4% to $356,980 million...compared to a year earlier, the unfilled order book for durable goods is still 1.3% below the level of last November, with unfilled orders for transportation equipment now 2.5% below their year ago level, largely on a 9.0% decrease in the backlog of orders for motor vehicles...

November New Home Sales Reported Higher (likely due to clement weather)

the Census report on New Residential Sales for November (pdf) estimated that new single family homes were selling at a seasonally adjusted pace of 592,000 homes annually, which was 5.2 percent (±14.1%)* above the October rate of 563,000 new single family home sales a year and 16.5 percent (±19.3%)* above the estimated annual rate that new homes were selling at in November of last year....the asterisks indicate that based on their small sampling, Census could not be certain whether November new home sales rose or fell from those of October, or even from November sales of a year ago, with the figures in parenthesis representing the 90% confidence range for reported data in this report, which has the largest margin of error and is subject to the largest revisions of any census construction series....with this report; sales new single family homes in October were unrevised from the annual rate of 563,000 reported last month, while home sales in September, initially reported at an annual rate of 593,000 and revised to a 574,000 a year rate last month, were revised to a 571,000 a year rate with this report, and while August's annualized home sale rate, initially reported at an annual rate of 609,000 and revised from the initially revised 575,000 a year rate to a 567,000 a year rate last month, were further revised down to a 559,000 rate with this release...

the annual rates of sales reported here are seasonally adjusted after extrapolation from the estimates of canvassing Census field reps, which indicated that approximately 41,000 new single family homes sold in November, down from the estimated 45,000 new homes that sold in October and the 44,000 that sold in September.....the raw numbers from Census field agents further estimated that the median sales price of new houses sold in November was $305,400, up from the median sale price of $302,700 in October but down from the median sales price of $317,000 in November a year ago, while the average November new home sales price was $359,900, up from the $354,700 average sales price in October, but down from the average sales price of $376,800 in November a year ago....a seasonally adjusted estimate of 250,000 new single family houses remained for sale at the end of November, which represents a 5.1 month supply at the November sales rate, down from the reported 5.2 months of new home supply in October...for graphs and additional commentary on this report, see the following two posts by Bill McBride at Calculated Risk: New Home Sales increase to 592,000 Annual Rate in November and A few Comments on November New Home Sales..

November Existing Home Inch Up After October Sales Revised Down (ditto)

the National Association of Realtors (NAR) reported that their seasonally adjusted count of existing home sales rose by 0.7% from October to November, projecting that a post recession record 5.61 million existing homes would sell over an entire year if the November home sales pace were extrapolated over that year, a pace that was also 15.4% above the annual sales rate projected in November of a year ago...October sales, now shown at a 5.57 million annual rate, were revised down from the 5.60 million annual rate indicated by last month's report...the NAR also reported that the median sales price for all existing-home types was $234,900 in November, up from $234,100 in October and 6.8% higher than in November a year earlier, which they report as "the 57th consecutive month of year-over-year gains".....the NAR press release, which is titled "Existing-Home Sales Forge Ahead in November", is in easy to read plain English, so if you're interested in the details on housing inventories, cash sales, distressed sales, first time home buyers, etc., you can easily find them in that press release...as sales of existing properties do not add to our national output, neither these home sales nor the prices for which these homes sell are included in GDP, except insofar as real estate, local government and banking services are rendered during the selling process…

since this report is entirely seasonally adjusted and at a not very informative annual rate, we like to look at the raw data overview (pdf), which gives us a close approximation to the actual number of homes that sold each month...this unadjusted data indicates that roughly 415,000 homes sold in November, down by 6.7% from the 445,000 homes that sold in October, but up by 18.2% from the 351,000 homes that sold in November of last year, so we can see that it was a seasonal adjustment that caused the annualized published figures to show an month over month increase....that same pdf indicates that the median home selling price for all housing types rose 0.3%, from a revised $234,100 in October to $234,900 in November, while the average home sales price was $276,800, up 0.4% from the $275,500 average sales price in October, and up 4.9% from the $263,800 average home sales price of November a year ago...for both seasonally adjusted and unadjusted graphs and additional commentary on this report, see the following two posts from Bill McBride at Calculated Risk: Existing Home Sales increased in November to 5.61 million SAAR and A Few Comments on November Existing Home Sales...

the week also saw the release of the first two regional Fed manufacturing surveys for December: the Empire State Manufacturing Survey from the New York Fed, which covers all of New York state, one county in Connecticut, Puerto Rico and northern New Jersey, reported their headline general business conditions index rose from +1.5 in November to +9.0 in December, suggesting a broader based pickup in First District manufacturing expansion....meanwhile, the Philadelphia Fed Manufacturing Survey, covering most of Pennsylvania, southern New Jersey, and Delaware, reported its broadest diffusion index of manufacturing conditions jumped from a reading of +7.6 in November to +21.5 in October, as nearly 34 percent of the region's manufacturing firms reported increases in their activity this month...

Retail Sales Up 0.1% in November after October Increase Revised 0.2% Lower

seasonally adjusted retail sales increased in November after retail sales for October were revised lower...the Advance Retail Sales Report for November (pdf) from the Census Bureau estimated that our seasonally adjusted retail and food services sales totaled $465.5 billion during the month, which was up 0.1 percent (±0.5%) from October's revised sales of $465.1 billion and 3.8 percent (±0.9%) above the adjusted sales in November of last year...October's seasonally adjusted sales were revised down from $465.9 billion to $456.1 billion, while September's sales were revised a bit higher, from $462.1 billion to $463.2 billion; as a result, the September to October change was revised down from up 0.8 percent (±0.5%) to up 0.6 percent (±0.2%).....estimated unadjusted sales, extrapolated from surveys of a small sampling of retailers, indicated sales rose 3.2%, from $453,692 million in October to $468,054 million in November, while they were up 5.3% from the $444,507 million of sales in November a year ago...the $0.2 billion upward revision to September sales should boost previous estimates of the personal consumption expenditures contribution to 3rd quarter GDP by about 0.02 percentage points...

included below is the table of the monthly and yearly percentage changes in retail sales by business type taken from the November Census Marts pdf....the first pair of columns below gives us the seasonally adjusted percentage change in sales for each kind of business from the October revised figure to this month's November "advance" report in the first sub-column, and then the year over year percentage sales change since last November in the 2nd column...the second double column pair below gives us the revision of the October advance estimates (now called "preliminary") as of this report, with the new September to October percentage change under "Sep 2016 r" (revised) and the October 2015 to October 2016 percentage change as revised in the last column shown...for your reference, the table of last month’s advance estimate of September sales, before this month's revisions, is here.….

from the above table, we can see that a 0.5% decrease to $95,782 million in seasonally adjusted sales at motor vehicle and parts dealers was partially responsible for the November sales weakness, because without those automotive sales, retail sales were up 0.2%...automotive sales for October were also revised lower, from the originally reported 1.1% increase to an increase of just 0.5%, and hence were responsible for most of the downward revision to that month's sales...otherwise, not much stands out; the 1.0% decrease to $7,664 million in sales at specialty stores such as sporting goods and bookstores was just a small part of the aggregate, as was the 0.8% decrease to $10,773 million in sales at miscellaneous stores...we'll be able to ascertain the net economic impact of this apparent weakness in retail sales shortly, once we adjust them for the price data from the CPI..

November Consumer Price Index Up 0.2% on Higher Gasoline, Rents

the consumer price index increased by 0.2% in November, as higher prices for energy and housing were only partially offset by lower prices for groceries and other goods...the Consumer Price Index Summary from the Bureau of Labor Statistics indicated that the seasonally adjusted price index for urban consumers rose 0.2% in November after it had risen 0.4% in October, 0.3% in September, and 0.2% in August....the unadjusted CPI-U, which was set with prices of the 1982 to 1984 period equal to 100, actually fell from 241.729 in October to 241.353 in November, which left it statistically 1.69% higher than the 237.336 index reading of last November, which is reported as a 1.7% YoY increase....regionally, prices for urban consumers have risen by 2.3% in the West, by 1.6% in the Northeast and in the South, and by 1.2% in the Midwest over the past year, with greater price increases within regions in cities of more than 1,500,000 people everywhere except in the Northeast, where the largest cities averaged just a 1.5% price increase...with higher prices for gasoline partially offset by lower grocery prices, seasonally adjusted core prices, which exclude food and energy, also rose by 0.2% for the month, with the unadjusted core index rising from 249.218 to 249.227, which left it 2.11% ahead of its year ago reading of 244.075...

the volatile seasonally adjusted energy price index increased by 1.2% in November, after it had risen by 3.5% in October, 2.9% in September, was unchanged in August and fell by 1.6% in July...as a result, energy prices are now 1.2% higher than a year ago, after seeing negative comparisons through most of this year and 2015...prices for energy commodities were 2.5% higher while the index for energy services fell by 0.1%, after rising by 0.5% in October....the increase in the energy commodity index included a 2.7% increase in the price of gasoline, the largest component, while price of fuel oil fell 1.2% and prices for other fuels, including propane, kerosene and firewood, rose by an average of 0.2%…within energy services, the index for utility gas service fell by 0.4% after increasing by 0.9% in October, 0.8% in September, 2.1% in August and by 3.1% in July, and hence utility gas is still priced 6.2% higher than it was a year ago, while the electricity price index was unchanged, after increasing by 0.4% in October...energy commodities are now priced 0.8% above their year ago levels, with gasoline prices averaging 1.0% higher than they were a year ago.…meanwhile, the energy services price index is now 1.5% higher than last November, as even electricity prices have increased by 0.2% over that period..

the supposedly volatile seasonally adjusted food price index was unchanged in November, just as it was in July, in August, in September and in October, as 0.1% lower prices for food purchased for use at home offset 0.1% higher prices for food bought to eat away from home, where we saw average prices at fast food outlets remain unchanged while average prices at full service restaurants rose 0.2%...the food price index is still 0.4% lower than a year ago, as a 2.2% drop in the price of food at home has been mostly offset by a 2.3% increase in prices for food away from home, which included a 2.1% increase in prices of lunches at elementary and secondary schools...

in the food at home categories, the price index for cereals and bakery products increased by 0.1% as 1.8% higher prices for cakes and cupcakes and a 1.1% increase in prices for fresh and frozen pastries were offset by a 1.3% decrease in prices for rice, pasta, cornmeal and a 1.4% decrease in cookie prices...the price index for the meats, poultry, fish, and eggs group fell by 0.1% as beef prices fell 0.2% and other prices in the category were little changed, while the index for dairy products was 0.6% lower on a 1.2% decrease in prices for milk...the fruits and vegetables index was 0.2% lower despite increases of 2.3% for potatoes and 1.7% for apples as lettuce prices were 2.8% lower and canned vegetable prices fell 0.6%....the beverages index was 0.3% higher as prices for beverage materials such as tea rose 0.8%...lastly, prices in the other foods at home category were on average 0.3% lower, as peanut butter prices fell 4.4% and salad dressings were priced 3.1% lower.....among food at home line items, only eggs, which are now priced 33.3% lower than a year ago, and lettuce, which is 15.1% lower than last year, have seen a price change greater than 10% over the past year...the itemized list for price changes in over 100 separate food items is included at the beginning of Table 2, which gives us a line item breakdown for prices of more than 200 CPI items overall...

among the seasonally adjusted core components of the CPI, which rose by 0.2% in November after rising by 0.1% in October, 0.1% in September, 0.3% in August, 0.1% in July and by 0.2% in April, in May and in June, the composite of all goods less food and energy goods fell by 0.3%, while the heavily weighted composite for all services less energy services was 0.3% higher....among the goods components, which will be used by the Bureau of Economic Analysis to adjust November retail sales for inflation in national accounts data, the index for household furnishings and supplies fell by 0.4% as major appliances were priced 1.9% lower, as were window and floor coverings, while prices for living room, kitchen, and dining room furniture were down 1.4%...the apparel price index was 0.5% lower on a 3.3% decrease in prices for men's suits, sport coats, and outerwear and a 1.6% decrease in prices for men's footwear....prices for transportation commodities other than fuel were unchanged, as prices for new cars fell 0.1%, prices for tires fell 1.3%, while prices for used cars and trucks finally rose 0.3% after falling more than 4.5% in the 5 months since May...meanwhile, prices for medical care commodities were 0.5% lower on a 0.6% decrease in prescription drug prices...meanwhile, the recreational commodities index fell 0.3% on a 4.8% drop in TV prices, which more than offset price increases of 1.5% for audio equipment and 0.9% for recreational reading materials...on the other hand, the education and communication commodities index was 0.1% higher as a 2.1% cut in prices for computer software and accessories was more than offset by a 1.3% price increase for telephone hardware and a 1.1% increase in prices for college textbooks....lastly, a separate price index for alcoholic beverages was down 0.2% on 0.8% lower prices for wine and 1.2% lower prices for whiskey bought for drinking at home, while the price index for ‘other goods’ was up 0.1% on a 1.8% increase in prices for stationery, stationery supplies, and gift wrap...

within core services, the price index for shelter rose 0.3% on a 0.3% increase in rents, a 0.3% increase in owner's equivalent rent, and a 0.5% increase in costs for water, sewers and trash collection, while prices for lodging away from home at hotels and motels were 1.4% lower...at the same time, the index for medical care services was up 0.2% as prices for physicians services rose 0.6% and services by other medical professionals rose 0.5%...in addition, the transportation services index was 0.4% higher on a 9.9% increase in automobile service club fees and 1.0% increases for both motor vehicle body work and for motor vehicle insurance....the recreation services price index was up 0.3% as cable and satellite television services rose 1.1% and club dues and fees for participant sports and group exercises rose 0.6%, and the index for education and communication services rose 0.2% as internet services providers increased prices 1.3% and elementary and high school tuition and fees rose 0.3%, offsetting a 0.3% decrease for wireless telephone services...lastly, the index for other personal services was up 0.1% as prices for haircuts and other personal care services were 0.4% higher...among core prices, only televisions, which are now 24.8% cheaper than a year ago, and computer software and accessories, which are down by 10.9% since last November, have seen prices drop by more than 10% over the past year, while no line item showed an increase of that magnitude...

Estimating the Real Change in November Retail Sales Using Components of the November CPI

with this CPI release for November, we can now attempt to estimate the economic impact of the November retail sales figures which we reviewed earlier, which saw nominal sales rise 0.1%...for the most accurate estimate, and the way the BEA will be figuring 4th quarter GDP at the end of January, we would have to take each type of retail sales and adjust it with the appropriate change in price to determine real sales; for instance, November's clothing store sales, which were unchanged in dollars, should be adjusted with the price index for apparel, which indicated prices for clothing were 0.5% lower for the month, which tells us that real unit sales of clothing were actually up by 0.5% in November...then, to get a GDP relevant quarterly change, we'd have to compare such adjusted real clothing sales for November with the similarly adjusted real clothing consumption for the 3 months of the third quarter (July, August and September), and then repeat that process for each other type of retailer, obviously quite a tedious task to undertake manually. The short cut we usually take to get a quick and dirty estimate of the change in real sales for the month is to apply the composite price index of all commodities less food and energy commodities, which was down by 0.3% in November, to retail sales less grocery, gas station, and restaurant sales, which accounts for nearly 70% of aggregate retail sales…in dollars, those non food and energy sales were down by $378 million, or nearly 0.1% in November, while as we noted earlier their composite price index was down 0.3%, meaning that real retail sales excluding food and energy sales were actually up by more than 0.2%. then, for the rest of the retail aggregate, we find sales at food and beverage stores were up by 0.4% in November, while prices for food at home were down 0.1%, suggesting a real increase of around 0.5% in the quantity of food & beverages purchased during the month. Next, sales at bars and restaurants were up 0.8% in dollars, but those dollars also bought 0.1% less “food away from home”, so real sales at bars and restaurants were really up by about 0.7%. And while gas station sales were up 0.3%, gasoline prices were up 2.7%, suggesting a real decrease of 2.4% in the amount of gasoline sold, with the caveat that gas stations sell more than gasoline, and we don't have a detailed breakout on those items, although we do know that tire prices were priced 1.3% lower and automotive fluids were down 0.2%...thus, weighing the food and energy components at roughly 30% of total retail sales, and core sales at 70%, we can estimate that the aggregate of real retail sales in November were up almost 0.3% from those of October…

Producer Prices Up 0.4% in November on 1.3% Higher Margins for Trade Services

the seasonally adjusted Producer Price Index (PPI) for final demand rose 0.4% in November as prices for finished wholesale goods increased 0.2%, while margins of final services providers increased by 0.5%...this followed an October report that indicated the overall PPI was unchanged, with prices for finished goods up 0.4% while final demand for services fell 0.3%, and a September report that indicated the PPI was up 0.3%, with prices for finished goods up 0.3% while final demand for services rose 0.1%....producer prices are now up 1.3% from a year ago, since most of the price decreases relating to lower oil and commodity prices went by the boards in early 2015...

as noted, the price index for final demand for goods, aka 'finished goods', rose by 0.2% in November, after rising 0.4% in October, 0.7% in September but falling by 0.4% in both July and August, as the index for wholesale energy prices fell 0.3% from October to November while the price index for wholesale foods was 0.6% higher and the index for final demand for core wholesale goods (ex food and energy) rose 0.2%...major wholesale price changes for November included a 16.0% increase for fresh fruits and melons and a 9.9% increase for beef and veal, while wholesale prices for liquefied petroleum gas fell 8.7% and wholesale gasoline prices were 2.9% lower...

meanwhile, the index for final demand for services rose by 0.5% in November after falling by 0.3% in October but rising by 0.1% in both August and September, as the index for final demand for trade services rose 1.3%, the index for final demand for transportation and warehousing services rose 0.1% and the for final demand for services less trade, transportation, and warehousing services was also 0.1% higher....among trade services, seasonally adjusted margins for TV, video, and photographic equipment retailers were up 6.0%, margins for apparel, jewelry, footwear, and accessories retailers were up 4.2%, margins for fuels and lubricants retailers were up 9.9%, and margins for major household appliances retailers were up 9.0%.. among transportation and warehousing services, margins for air transport of freight fell 2.3% while all other transportation and warehousing services were higher.. in the core final demand services index, margins for passenger car rentals were 3.0% higher while margins for cruises and tours agencies were 3.1% lower...

this report also showed the price index for processed goods for intermediate demand was 0.3% higher, after rising 0.3% in October and 0.5% in September...prices for intermediate processed goods are now 0.2% higher than in November a year ago after 16 months of lower year over year comparisons, as intermediate goods prices fell every month from July 2015 through March 2016.... in November, the price index for intermediate energy goods fell 0.8%, while prices for intermediate processed foods and feeds rose 0.8%, and the core price index for processed goods for intermediate demand less food and energy was 0.4% higher on a 9.5% increase in intermediate wholesale prices for primary basic organic chemicals...

at the same time, the price index for intermediate unprocessed goods was unchanged in November after a 0.6% decrease in October, a 1.3% increase in September, and a 2.8% drop in August...the price index for unprocessed foodstuffs and feedstuffs was up 3.5%, as the index for slaughter steers and heifers rose 10.7 percent, while the index for crude energy goods fell 5.0% as prices for crude oil fell 11.6%...at the same time, the index for core raw materials other than food and energy materials rose 2.4%, on an 11.4% increase in wholesale prices for iron and steel scrap... this raw materials index has now turned positive 0.2% from year ago, in contrast to its maximum year over year decrease of 26.4% that was seen in November of 2015...

lastly, the price index for services for intermediate demand was 0.2% higher in November, after being 0.6% lower in October, 0.4% higher in September, and being unchanged in August... the index for trade services for intermediate demand was 0.2% higher as margins for food wholesalers rose 2.0%, the index for transportation and warehousing services for intermediate demand was unchanged, as pricing for intermediate services related to air freight transportation fell 2.3%, while the core price index for services less trade, transportation, and warehousing for intermediate demand rose 0.3%, as a 3.2% increase in the index for for business loans (partial) accounted for 80% of the November increase in services for intermediate demand...over the 12 months ended in November, the year over year price index for services for intermediate demand, which has never turned negative on an annual basis, is now 2.3% higher than it was a year ago...

Industrial Production Falls 0.4% in November on Warmer than Normal Weather

the Fed's G17 release on Industrial production and Capacity Utilization reported that industrial production fell 0.4% in November after rising by a revised 0.1% in October and falling by 0.2 percent in September, largely on a 4.4% drop in the utility index, as warmer than normal temperatures reduced the demand for heating....the industrial production index, with the benchmark now set for average 2012 production to equal to 100.0, fell to 103.9 in November from 104.3 in October, which was statistically unrevised from last month, as were indexes of other prior months except for the July index, which was revised from 104.6 to 104.5....year over year industrial production is now down just 0.6%, an improvement from last month's 0.9% YoY decrease....

the manufacturing index, which accounts for more than 77% of the total IP index, was unchanged at 103.2 in November but was reported 0.1% lower, after the change from September to 103.0 to October was revised from a 0.2% increase to a 0.3% increase because the index for September was revised from 103.0 to 102.9; in addition, July's manufacturing index was revised down from 103.4 to 103.3....meanwhile, the mining index, which includes oil and gas well drilling, rose from 106.2 in October to 107.4 in November, after the October index was revised up from 106.1, which nonetheless still left the mining index 6.4% lower than it was a year earlier...finally, the utility index, which often fluctuates due to above or below normal temperatures, fell 4.4% in November, from 102.2 to 97.7, after the September utility index was revised up from 104.9 to 105.1...with the warmest Autumn in US weather history, the utility index has dropped 9.6% over the past 3 months, and is now 1.9% lower than it was a year earlier..

this report also includes capacity utilization data, which is expressed as the percentage of our plant and equipment that was in use during the month, and which indicated that seasonally adjusted capacity utilization for total industry fell to 75.0% in November from 75.4% in October, which was revised from the 75.3% reported last month ...capacity utilization of NAICS durable goods production facilities fell from 76.2% in October to 75.9% in November, while capacity utilization for non-durables producers rose from an upwardly revised 74.5% to 74.7%...capacity utilization for the mining sector rose to 78.2% in November from 77.1% in October, which was originally reported as 77.0%, while utilities were operating at 74.4% of capacity during November, down from their 77.9% of capacity during October, which was revised up from the previously reported 77.8%...for more details on capacity utilization by type of manufacturer, see Table 7: Capacity Utilization: Manufacturing, Mining, and Utilities, which shows the historical capacity utilization figures for a dozen types of durable goods manufacturers, 8 classifications of non-durable manufacturers, mining, utilities, and capacity utilization for a handful of other special categories....

October Business Sales Up 0.8% Business Inventories Down 0.2%

after the release of the November retail sales report, the Census Bureau released the composite Manufacturing and Trade, Inventories and Sales report for October (pdf), which incorporates the revised October retail data from that November report and the earlier published October wholesale and factory data to give us a complete picture of the business contribution to the economy for that month....according to the Census Bureau, total manufacturer's and trade sales were estimated to be valued at a seasonally adjusted $1,326.8 billion in October, up 0.8 percent (±0.2%) from September's revised sales, and up 2.1 percent (±0.4%) from October sales of a year earlier...note that total September sales were concurrently revised up from the originally reported $1,314.6 billion to $1,316.0 billion....manufacturer's sales were up 0.4% to $464,722 million in October; retail trade sales, which exclude restaurant & bar sales from the revised October retail sales reported earlier, rose 0.7% to $409,881 million, and wholesale sales rose 1.4% to $452,169 million...

meanwhile, total manufacturer's and trade inventories, a major component of GDP, were estimated to be valued at a seasonally adjusted $1,813.0 billion at the end of October, down 0.2 percent (±0.1%)* from September, but still 0.4 percent (±0.5%)* higher than in October a year earlier...at the same time, the value of end of September inventories was revised from the $1,818.7 billion reported last month to $1817.0...seasonally adjusted inventories of manufacturers were estimated to be valued at $621,438 million, statistically unchanged from September, while inventories of retailers were valued at $603,797 million, 0.4% less than in September, and inventories of wholesalers were estimated to be valued at $587,730 million at the end of October, also 0.4% lower than in September...

for GDP purposes, all inventories, including retail, are adjusted for inflation with appropriate component price indices of the producer price index for October, which was up 0.4% for finished goods...last week, we looked at real factory inventories with price adjustments for goods at various stages of production, and judged those inventories would have a negligible impact on 4th quarter GDP…also last week, we found that real wholesale inventories would likely subtract about 0.07 or 0.08 percentage points from 4th quarter GDP growth….this week's real retail inventories for October, after a 0.4% price adjustment of the 0.4% nominal value decline, thus would have decreased by about 0.8% from September, in a third quarter that saw producer price index decreases of 0.2% in both July and August boost real inventories...thus it appears that retail inventories in October are also on track to subtract at least 0.08 percentage points from 4th quarter GDP growth, if not more..

November Housing Starts and Permits Fall from October Highs

the November report on New Residential Construction (pdf) from the Census Bureau estimated that their widely watched count of new housing units started in November was at a seasonally adjusted annual rate of 1,090,000, which was 18.7 percent (±6.7%) below the revised October estimated annual rate of 1,340,000 housing units started, and was 6.9 percent (±7.3%)* below last November's rate of 1,171,000 housing starts a year...the asterisk indicates that the Census does not have sufficient data to determine whether housing starts actually rose or fell over the past year, with the figure in parenthesis the most likely range of the change indicated; in other words, November housing starts could have been up by 0.4% or down by as much as 14.2% from those of last November, with even larger revisions possible...in this report, the annual rate for October housing starts was revised from the 1,323,000 reported last month to 1,340,000, while September starts, which were first reported at a 1,047,000 annual rate, were revised down from last month's initial revised figure of 1,154,000 annually back to 1,052,000 annually with this report....

those annual rates of starts reported here were extrapolated from a survey of a small percentage of US building permit offices visited by canvassing Census field agents, which estimated that 82,800 housing units were started in November, down from the 115,700 units that were started in October...of those housing units started in November, an estimated 60,700 were single family homes and 21,900 were units in structures with more than 5 units, down from the revised 72,700 single family starts and the 41,700 units started in structures with more than 5 units in October...

the monthly data on new building permits, with a smaller margin of error, are probably a better monthly indicator of new housing construction trends than the volatile and often revised housing starts data...in November, Census estimated new building permits were being issued at a seasonally adjusted annual rate of 1,201,000 housing units, which was 4.7 percent (±1.1%) below the revised October rate of 1,260,000 permits, and was 6.6 percent (±2.6%) below the rate of building permit issuance in November a year earlier...the annual rate for housing permits issued in October was revised up from the originally reported 1,229,000....again, these annual estimates for new permits reported here were extrapolated from the unadjusted estimates collected monthly by canvassing census agents, which showed permits for 97,900 housing units were issued in November, down from the revised estimate of 100,700 new permits issued in October...the November permits included 55,800 permits for single family homes, down from 61,600 single family permits issued in October, and 31,300 permits for housing units in apartment buildings with 5 or more units, down from 36,600 such multifamily permits a month earlier... for more graphs and commentary on this report, see the following two posts by Bill McBride at Calculated Risk: Housing Starts decreased to 1.090 Million Annual Rate in November and Comments on November Housing Starts...

October Trade Deficit Up 18% on Much Higher Imports and Much Lower Exports

our trade deficit rose by 17.7% in October as the value of our exports decreased and the value of our imports increased....the Census report on our international trade in goods and services for October indicated that our seasonally adjusted goods and services trade deficit rose by $6.4 billion to $42.6 billion in October from a revised September deficit of $36.2 billion...the value of our October exports fell by $3.4 billion to $186.4 billion on a $3.5 billion decrease to $123.1 billion in our exports of goods and a $0.1 billion increase to $63.3 billion in our exports of services, while our imports rose $3.0 billion to $229.0 billion on a $2.8 billion increase to $186.5 billion in our imports of goods and a $0.2 billion increase to $42.4 billion in our imports of services...export prices were on average 0.2% higher in October, so the relative real decrease in October exports would be greater than the nominal decrease by that percentage, while import prices were 0.5% higher, meaning real imports were smaller than the nominal dollar values reported here by that percentage....

the drop in our October exports of goods resulted from lower exports of foods, feeds and beverages, industrial supplies and materials, and consumer goods...referencing the Full Release and Tables for October (pdf), in Exhibit 7 we find that our exports of foods, feeds and beverages fell by $1404 million to $11,250 million on a $984 million decrease in our exports soybeans and a $451 million decrease in our exports of corn...our exports of industrial supplies and materials fell by $1040 million to $33,703 million on a $495 million decrease in our exports of nonmonetary gold, a $450 million decrease in our exports of fuel oil, a $314 million decrease in our exports of aluminum, a $274 million decrease in our exports of organic chemicals, and a $260 million decrease in our exports of crude oil, which were partially offset by a $306 million increase in our exports of natural gas liquids and a $254 million increase in our exports of other petroleum products...in addition, our exports of consumer goods fell by $902 million to $15,921 million on a $956 million decrease in our exports of artwork and antiques, and our exports of automotive vehicles, parts, and engines fell by $35 million to $12,413 million as decreased exports of trucks, buses, and special purpose vehicles were offset by increased exports of bodies and chassis for passenger cars...slightly offsetting the decreases in those export categories, our exports of capital goods rose by $37 million to $43,717 million and our exports of other goods not categorized by end use rose by $138 million to $5,887 million...

Exhibit 8 in the Full Release and Tables gives us seasonally adjusted details on our goods imports and shows that higher imports of consumer goods and capital goods were responsible for the $2.8 billion increase in our goods imports, even as our imports of passenger cars decreased...our imports of consumer goods rose by $2,374 million to $49,556 million on a $671 million increase in our imports of pharmaceuticals, a $373 million increase in our imports of cellphones, and a $331 million increase in our imports of apparel and fabric household goods, other than those made of wool or cotton...at the same time, our imports of capital goods rose by $1,067 million to $49,552 million on a $581 million increase in our imports of computer accessories, and a $319 million increase in our imports of telecommunications equipment...in addition, our imports of foods, feeds, and beverages rose by $23 million to $10,932 million and our imports of other goods not categorized by end use fell by $247 million to $7,829 million...partially offsetting those increases, our imports of automotive vehicles, parts and engines fell by $667 million to $29,175 million on a $1,222 million drop in our imports of of new and used passenger cars even as our imports of trucks, buses, and special purpose vehicles rose by $466 million, and our imports of industrial supplies and materials fell by $340 million to $37,737 million as our imports of organic chemicals fell by $595 million and our imports of nonmonetary gold fell by $485 million while our imports of crude oil rose by $217 million...

to gauge the impact of October trade on 4th quarter GDP growth figures, we use exhibit 10 in the pdf for this report, which gives us monthly goods trade figures by end use category and in total, already adjusted in chained 2009 dollars, the same inflation adjustment used by the BEA to compute trade figures for GDP, albeit they are not annualized here....from that table, we can estimate that 3rd quarter real exports of goods averaged 122.746.7 million monthly in 2009 dollars, while inflation adjusted October exports were at 120,548 million in the same 2009 dollar quantity index representation... annualizing the change between the two figures, we find that October's real exports of goods are running at a 7.0% annual rate below those of the 3rd quarter, or at a pace that would subtract about 0.56 percentage points from 4th quarter GDP if continued through November and December.....in a similar manner, we find that our 3rd quarter real imports of goods averaged 179,347.3 million monthly in chained 2009 dollars, while inflation adjusted October goods imports were at 180,896 million...that would indicate that so far in the 4th quarter, we have seen an increase in our real imports at annual rate of 3.5% from those of the 3rd quarter...since imports subtract from GDP because they represent the portion of consumption or investment that occurred during the quarter that was not produced domestically, their increase at a 3.5% rate would subtract another 0.40 percentage points from 4th quarter GDP....hence, if the October trade deficit is maintained at the same level throughout the 4th quarter, our deteriorating balance of trade in goods would subtract about 0.96 percentage points from the growth of 4th quarter GDP....note that we have not computed the impact of the less volatile change in services here because the Census does not provide inflation adjusted data on those, and we don't have easy access to all their price changes...

this report also indicated that the seasonally adjusted value of October factory shipments rose for the seventh time in 8 months, increasing by $1.7 billion or 0.4 percent to $464.7 billion, following a 0.9% increase in September, revised from the previously published 0.8% increase...shipments of durable goods were down by $0.3 billion or 0.1 percent to $234.1 billion, revised from the 0.2% increase that was published two weeks ago...meanwhile, the value of shipments (and hence of "new orders") of non-durable goods rose by $2.0 billion, or 0.9%, to $230.7 billion, as a $2.1 billion, 6.3% increase in the value of shipments from petroleum refineries accounted for the increase...

meanwhile, the aggregate value of October factory inventories rose for the third time in four months, increasing by $0.3 billion to $621.4 billion, which was unchanged from the total published in September... October inventories of durable goods increased in value by less than $0.1 billion to $383.7 billion, essentially unrevised from what was reported in the advance report....the value of non-durable goods' inventories increased by $0.3 billion or 0.1% to $237.8 billion, following a decrease of 0.2% in September...to gauge the effect of those October inventories on 4th quarter GDP, they must first be adjusted for changes in price with appropriate components of the producer price index...by stage of fabrication, the value of finished goods inventories was up 0.3% to $221.6 billion in October; the value of work in process inventories was down 0.3% to $191.0 billion, and materials and supplies inventories were valued 0.2% higher at $208.9 billion...the October producer price index reported prices for finished goods increased 0.4%, prices for intermediate processed goods inventories were 0.3% higher, while prices for unprocessed goods were 0.6% lower, thus indicating that real finished goods inventories were 0.1% lower, real inventories of intermediate processed goods were 0.6% lower, and raw material inventory inventories were 0.8% higher...the aggregate change in real factory inventories are thus little changed, and so would have a negligible impact on 4th quarter GDP...

October Wholesale Sales Up 1.4%, Wholesale Inventories Down 0.4%

the value wholesale sales increased in October, while the value of wholesale inventories decreased, in a month when producer prices for finished goods were 0.4% higher...the October report on Wholesale Trade, Sales and Inventories (pdf) from the Census Bureau estimated that the seasonally adjusted value of wholesale sales was at $452.2 billion, up by 1.4 percent (+/0.7%) from the revised September level of $446.1 billion, and 2.2 percent (+/-0.9%) above the value of wholesale sales of a year earlier...the September preliminary estimate was revised upward $1.2 billion, which now means September sales were 0.4% more than those of August....wholesale sales of durable goods were up 1.1 percent (+/-0.7%) from last month and were up 2.5 percent (+/-1.4%) from a year earlier, with wholesale sales of electrical and electronic goods 2.2% higher than in September while wholesale sales of computer equipment fell 2.3%...wholesale sales of nondurable goods were up by 1.6 percent (+/-0.9%) from September, and were up 1.9 percent (+/-1.4%) from last October, with wholesale sales of petroleum and petroleum products up 6.6%, and wholesale sales of raw farm products up 8.6% on the month, mostly on higher prices...as an intermediate activity, wholesale sales are not included in GDP except as a trade service, since they do not represent an increase in the output of the goods sold....

on the other hand, the monthly change in private wholesale inventories is a major factor in GDP, as additional goods “on the shelf” represent goods that were produced, and the Census estimated they were valued at $587.7 billion at the end of October, 0.4 percent (+/-0.4%)* lower than the revised September and 0.4 percent (+/-1.2%)* below the valuation of last October's inventories...September's preliminary inventory estimate was revised down from the previously reported $590.2 billion to $589.5 billion, and hence September wholesale inventories were up just 0.1% from August....wholesale durable goods inventories were down 0.3 percent (+/-0.4%)* from September and were 2.2 percent (+/-1.4%) lower than a year earlier, as the value of furniture and home furnishings were 1.6% higher, while the value of inventories of metals and minerals were down 1.0%...inventories of nondurable goods were valued 0.4 percent (+/-0.7%)* lower than in September, but were valued 2.5 percent (+/-2.1%) higher than last October, as the value of inventories of petroleum and petroleum products was up 1.9% while the value of inventories of drugs and druggists' supplies was 3.2% lower than in September...with the October producer price index for finished goods up by 0.4% on 2.5% higher energy prices, while intermediate wholesale prices rose 0.3%, real wholesale inventories appear to be down on the order of 0.8% from September, which would subtract about 0.07 or 0.08 percentage points from 4th quarter GDP growth...

Job Openings, Hiring and Firing Decrease in October

the Job Openings and Labor Turnover Survey (JOLTS) report for October from the Bureau of Labor Statistics estimated that seasonally adjusted job openings decreased by 97,000, from 5,631,000 in September to 5,534,000 in October, after September job openings were revised 145,000 higher, from 5,486,000 to 5,631,000...October's jobs openings were 2.1% higher than the 5,422,000 job openings reported in October a year ago, as the job opening ratio expressed as a percentage of the employed at 3.7% was unchanged from September and from October a year ago...most of the October decrease in openings can be accounted for by the 87,000 job opening decrease to 926,000 openings in the broad professional and business services sector, while the health care and social assistance sector saw openings by increase 139,000 to 1,109,000 (see table 1 for more details)...like most BLS releases, the press release for this report is easy to understand and also refers us to the associated table for the data cited, which are linked at the end of the release...

Mortgage Delinquencies Rise Again in October Even as New Foreclosures Fall to 12 Year Low

the Mortgage Monitor for October (pdf) from Black Knight Financial Services (BKFS, formerly LPS) reported that there were 503,719 home mortgages, or 0.99% of all mortgages outstanding, remaining in the foreclosure process at the end of October, which was down from 509,047, or 1.00% of all active loans, that were in foreclosure at the end of September, and down from 1.43% of all mortgages that were in foreclosure in October of last year....these are homeowners who at least had a foreclosure notice served, but whose homes had not yet been seized, and the October "foreclosure inventory" now represents the lowest percentage of homes that remained in the foreclosure process since July of 2007... new foreclosure starts, which have been volatile from month to month, fell to a 12 year low of 56,451 in October from 61,664 in September and were down from the 73,200 new foreclosures we saw in October a year ago...

in addition to homes in foreclosure, Mortgage Monitor data also showed that 2,202,394 mortgages, or 4.35% of all mortgage loans, were at least one monthly mortgage payment overdue but not in foreclosure at the end of October, up from the 4.27% of homeowners with a mortgage who were more than 30 days behind in September, but down from the mortgage delinquency rate of 4.77% in October a year earlier, while also up from the mortgage crisis low of 4.08% of all mortgages that were delinquent in March of this year...of those who were delinquent in October, 676,993 home owners, or 1.34% of those with a mortgage, were more than 90 days behind on mortgage payments, but still not in foreclosure at the end of the month, which was also up from the 668,114 such "seriously delinquent" mortgages in September...combining the total number of delinquent mortgages with those in foreclosure, we find that a total of 2,706,068 mortgage loans, or 5.34% of homeowners with a mortgage, were either late in paying or in foreclosure at the end of October, and that 1,180,712 of them, or 2.33% of all mortgaged homeowners, were in serious trouble, ie, either "seriously delinquent" or already in foreclosure at month end...

To put this production cutback in perspective, we'll next include a series of graphics which should give you a decent idea how big this production cut is relative to OPEC's recent and earlier oil production, and relative to the global oil supply. First, we'll start with a graph of OPEC's monthly oil production over the past dozen years...

The above graph, taken from the 'OPEC oil charts" page at the Peak Oil Barrel blog, shows total oil production, in thousands of barrels per day, for the 14 members of OPEC for the period from January 2005 to October 2016. As we pointed out last week, OPEC production has been spiking the past few months as member states pumped what they could to be better positioned for any percentage cutback resulting from this earlier planned meeting, and had reached 33.643 million barrels per day as of the October report. The agreed to production cuts will reduce their output to approximately 32.5 million barrels per day, which you should notice is about what they were producing in March and April of this year.

Next, we have a table of oil production by each of the members of OPEC for the recent months, quarters, and years, which comes from the November OPEC Monthly Oil Market Report, which was released on November 11th. Here you can see that the total oil output for the first quarter of 2016 (1Q16) was 32,500,000 barrels per day, exactly what these "cutbacks in production" hope to get back to. For the Persian Gulf OPEC members, much of cut that will be close to their normal seasonal reduction anyhow, since they usually ramp up their oil production during the summer months to generate electricity for air conditioning, then slow production in the fall.

note that the numbers shown in the October column above are close to the reference production levels on which the 4.5% production cuts are based...for instance, the Saudis will be cutting from 10,544,000 barrels per day back to 10,058,000 barrels per day, the Iraqis will be cutting from the 4,561,000 barrels per day shown above to 4,351,000 barrels per day, and the Kuwaitis will be cutting from 2,838,000 barrels per day to 2,707,000 barrels per day. The exception is for Iran, whose cuts are based on their production from Table 5.8: OPEC crude oil production based on direct communication in that same OPEC monthly report, wherein Iran reported oil production of 3,920,000 barrels per day in October...thus, when Iran cuts 4.5% from that level, their allowed production will be 3,797,000 barrels per day, actually 90,000 barrels per day more than their OPEC reference production...

Lastly, instead of explaining in detail how oil prices moved this week, we'll just include a chart which shows oil prices for every hour, every day, for the 5 trading days in question. The graph below is a Saturday afternoon screenshot of the oil price graph at DailyFX, a trading news and analytics platform which specializes in foreign exchange (FX) trading. Each bar on this graph represents oil prices for one hour of trading; when oil prices went up during a given hour, the bar will be green, with the starting price at the bottom of the bar and the price at the end of the hour at the top of the bar. During those hours when the price of oil fell, the bar will be red, with the starting price at the top of the bar and the price at the end of the hour at the bottom of the bar. This variety of graph is called a candlestick, and the range of oil prices outside of the opening and closing price for any given period is indicated by a thin 'wick' above or below the "candlestick" part of the graph. Thus we can see that in the wee hours of Wednesday morning, when it appeared neither Iran or Iraq would agree to a cut, oil prices fell below $45 a barrel, as some were even forecasting that oil prices would fall to $20 a barrel after the presumed OPEC meeting failure. Oil prices then ran up to as high as $51.75 a barrel during the day on Thursday, before sliding back to close at $51.06. But the rally picked up steam again on Friday and oil closed the week with another gain at $51.68 a barrel, up 14.2% in the three days after the OPEC meeting..

Oil prices above $50 a barrel will likely accelerate the return of US drillers and frackers to the field, as we've already seen 5 months of steadily rising rig counts with oil prices stuck between $42 and $50 a barrel. Also recall that two weeks ago, the Drilling Productivity Report for November showed that the count of drilled but uncompleted wells rose to 5,155 in October, with more than half of those in the Permian and the Eagle Ford, the two big shale oil fields of Texas. We would expect a pickup in completion of those wells, and an attendant increase in US oil production as prices rise, partially ameliorating the OPEC production cuts. And should oil prices top $60 a barrel, the Dallas Fed 3rd quarter energy survey of American oil and gas executives indicates that between 65% and 70% of oil execs would then pull out all the stops and start drilling everywhere again.

note on the graphs used here

in March a year ago the St Louis Fed, home to the FRED graphs, changed their graphs to an interactive format, which apparently necessitated eliminating some of the incompatible options which we had used in creating our static graphs before then...as a result, many of the FRED graphs we've included on this website previous to that date, all of which were all created and stored at the FRED site and which we'd always hyperlinked back there, were reformatted, which in many cases changed our bar graphs to line graphs, and some cases rendered them unreadable... however, you can still click the text links we've always used in referring to them to view versions of our graphs as interactive graphs on the FRED site, or in the case where an older graph has gone missing, click on the blank space where it had been in order to view it in the new format....